IMPORTANT CHANGE IN PPI COMMODITY CODE STRUCTURE - Addition of Services Table 6 Codes:

All taxpayers that use the IPIC LIFO method provided for by IRS Regulations that are not retailers (retailers can use either CPI or PPI indexes) must use PPI indexes.

IRS Reg. Sec. 1.472-8(e)(3)(iii)(B)(2) reads as follows: “ (2) BLS table selection. Manufacturers, processors, wholesalers, jobbers, and distributors must select BLS price indexes from Table 6 (Producer price indexes and percent changes for commodity groupings and individual items, not seasonally adjusted) of the ‘‘PPI Detailed Report’’, unless the taxpayer can demonstrate that selecting BLS price indexes from another table of the ‘‘PPI Detailed Report’’ is more appropriate.“

In the many years in which we have provided IPIC LIFO method software and IPIC method consulting services, very seldom have we found there to be PPI Table 5 or any other PPI table codes which are more appropriate for an inventory item than a Table 6 code because almost all Table 5 codes also have a Table 6 code for that specific inventory item or there is a very close correlation.

The reason that the IRS specifies that only PPI Table 6 codes should be used to calculate LIFO indexes is that Table 6 categories are commodity price indexes. The title of the PPI Table 5 is “Producer price indexes for the net output of selected industries and their products”, so this table is primarily industry based. The title of the PPI Table 6 is “Producer price indexes for commodity and service groupings and individual items, not seasonally adjusted”.

Because LIFO is an inventory accounting method, it follows that the IRS requires the use of the commodity based PPI Table 6 indexes rather than the industry based indexes except for the rare cases for which a Table 5 code is more appropriate than any Table 6 code for an inventory item.

There was a major change introduced into the organization of the PPI Table 6 codes by the Bureau of Labor Statistics (BLS) starting with the July 2009 PPI Detailed Report. Prior to that time, the Table 6 codes were organized using 15 different 2-digit codes (first two digits of all codes) representing 15 different commodity types. In July 2009, the BLS added numerous “Wherever-Provided Service” PPI Table 6 codes. These new service PPI Table 6 codes have 2-digit codes of 30 through 80. This is a link to pages 8 and 9 from the July 2009 PPI Detailed Report entitled “PPI Introduces Wherever-Provided Services and Construction Indexes” that describes the new organization of Table 6:

PPI Introduces Wherever-Provided Services and Construction Indexes

This is a link to a BLS publication entitled “New wherever provided services and construction indexes for PPI” which dated August 2009 that describes this change in more detail:

New wherever provided services and construction indexes for PPI

Although the IRS has yet to issue guidance on whether the new PPI Table 6 service codes can be used to calculate LIFO indexes, we believe that they should not be used because inventory items correlate to commodity codes and not service codes.

Despite the fact that Table 6 codes were intended to reflect price changes for commodities, there were a number of Table 6 codes which represented services and not commodities. Effective with the changes in the organization of the Table 6 codes in July 2009, all of the pre-July2009 Table 6 codes with 01 through 15 2-digit codes that were considered to be service codes were reassigned (“recoded” is the term used by the BLS) to codes with 2-digit codes of 33 through 80.

We believe there have been a small number of 093 Publications, printed matter and printing material 3-digit codes that may have been used for LIFO purposes. Shown below is a table listing these codes.

The left columns of the table below are PPI Table 6 commodity codes for newspaper, periodical and book publishing included with 093 3-digit codes until July 2009. These codes were reclassified or recoded as services and are included in that section of Table 6 now with a 33 2-digit code for Publishing sales. If any of these codes were used for LIFO purposes before July 2009, the proper codes to use after that time are shown in the right columns.
Table 1

Codes discontinued starting July 2009		New codes to use starting July 2009
093	Publications, printed matter & printing mat’l	094	Publications, printed matter & printing mat'l

0931	Newspapers	094701	Magazine and periodical printing
093101	Circulation	094701	Magazine and periodical printing
09310101	Daily & Sunday newspapers (subscriptions and sales)	094701	Magazine and periodical printing
09310105	Weekly & other newspapers (subscriptions and sales)	094701	Magazine and periodical printing

0932	Periodicals	094701	Magazine and periodical printing
093204	Circulation	094701	Magazine and periodical printing
09320401	Periodicals, subscriptions and single copy sales	094701	Magazine and periodical printing

0933	Book publishing	09440113	Book printing
093301	Textbooks	09440113	Book printing
09330101	Textbook publishing, including teachers’ editions	09440113	Book printing
093302	Technical, scientific & professional books	09440113	Book printing
09330201	Technical, scientific, and professional	09440113	Book printing
093303	Religious books	09440113	Book printing
09330301	Religious book publishing	09440113	Book printing
093304	General books	09440113	Book printing
09330414	Mass market rack-size book publishing	09440113	Book printing
09330416	Adult trade and juvenile	09440113	Book printing
09330417	Book club and mail order book publishing	09440113	Book printing
093305	General reference books	09440113	Book printing
09330501	General reference book publishing	09440113	Book printing
093308	Other books, incl. music books & pamphlets	09440113	Book printing
09330801	Other book publishing, excluding pamphlets	09440113	Book printing
09330802	Pamphlet publishing (5 to 48 pages)	09440113	Book printing

0936	Greeting cards and misc. publishing	09470609	Other commercial general job printing
093601	Miscellaneous publishing	09470609	Other commercial general job printing
09360104	Greeting card publishing	09470609	Other commercial general job printing
09360105	All other publishing	09470609	Other commercial general job printing
093602	Directory and mailing list publishing	09470609	Other commercial general job printing
09360201	Directory and mailing list publishing	09470609	Other commercial general job printing

The codes in the right column represent the physical printing of printed material and the codes in the left column represent the “publication” involved with the marketing and sale of printed material and apparently the BLS considers the publication of printed material to be a service and not a commodity.

To make this change even more confusing, the BLS has recoded all the codes included in the 0934 Book printing, 0937 Commercial printing and 0938 Blankbooks, binders, and bookbinding work 4-digit codes that existed prior to July 2009 so those indexes are no longer published and beginning in July 2009 all these codes were recoded as 0944, 0947 and 0948 4-digit codes, respectively. The table below shows the before and after July 2009 Table 6 codes for the printing codes.

Table 2
Table 6 093 3-digit Printing codes that were recoded as of July 2009 as 094 3-digit codes
Codes discontinued starting July 2009		New codes to use starting July 2009
0934	Book printing	0944	Book printing
093401	Book printing	094401	Book printing
09340113	Book printing	09440113	Book printing
0935	Manifold business forms	0945	Manifold business forms
093501	Manifold business forms	094501	Manifold business forms
09350101	Unit set forms	09450101	Unit set forms
09350102	Manifold books	09450102	Manifold books
09350103	Custom continuous forms	09450103	Custom continuous forms
09350104	Stock continuous forms	09450104	Stock continuous forms

0937	Commercial printing	0947	Commercial printing
093701	Magazine and periodical printing	094701	Magazine and periodical printing
09370102	Lithographic	09470102	Lithographic
09370103	Gravure	09470103	Gravure
093702	Label and wrapper printing for packaging	094702	Label and wrapper printing for packaging
09370201	Letterpress	09470201	Letterpress
09370202	Lithographic	09470202	Lithographic
09370203	Gravure	09470203	Gravure
09370205	Flexographic	09470205	Flexographic
093703	Catalog and directory printing	094703	Catalog and directory printing
09370302	Lithographic	09470302	Lithographic
09370303	Gravure	09470303	Gravure
09370304	Letterpress	09470304	Letterpress
093704	Financial and legal printing	094704	Financial and legal printing
09370402	Lithographic	09470402	Lithographic
093705	Advertising printing	094705	Advertising printing
		09470501	Letter Press
09370502	Lithographic	09470502	Lithographic
09370503	Gravure	09470503	Gravure
093706	Other general job printing	094706	Other general job printing
09370601	Letterpress	09470601	Letterpress
09370602	Quick printing	09470604	Quick printing
09370603	Gravure	09470603	Gravure
09370609	Other general job printing, n.e.c.	09470609	Other commercial general job printing
093711	Commercial printing, n.e.c.	094711	Commercial printing, n.e.c.
09371101	Screen printing, excluding textiles	09471101	Screen printing, excluding textiles
09371102	Engraving	09471102	Engraving
09371103	Digital printing	09471103	Digital printing
09371104	Flexographic printing
09371106	Flexographic printing	09471106	Flexographic printing

0938	Blankbooks, binders, and bookbinding work	0948	Blankbooks, binders, and bookbinding work
093801	Bankbooks, looseleaf binders, and devices	094801	Bankbooks, looseleaf binders, and devices
09380101	Blankbook making	09480101	Blankbook making
09380102	Looseleaf binders and devices	09480102	Looseleaf binders and devices
093802	Bookbinding and related work	094802	Bookbinding and related work
09380201	Edition, library and other hardcover book binding	09480201	Edition, library and other hardcover book binding
09380202	Other book and pamphlet binding	09480202	Other book and pamphlet binding

For companies that use our LIFO-PRO software, the PPI index files that will include the December 2009 indexes which will be available on January 20, 2010 will include data which will automatically reassign any inventory balances entered into the Excel input schedule (year end FIFO or average cost balances by PPI code) to which a pre-July 2009 093 3-digit service code is assigned to the appropriate 094 3-digit code as shown in Table 1 above. The software will also automatically make the reassignments necessary for the codes shown in Table 2 above.